Hutchins Roundup: Earnings gap, housing shortage, and more

In the 1980s, college graduates earnings began far outpacing those of non-college graduates. Many economists point to supply and demand factors as an explanation for this rising skill premium, while others point to the role of labor market institutions. Jonathan Vogel of UCLA makes the case that supply, demand, and institutional factors are at play. Using national data on wages and educational attainment, he finds that half of the increase in the skill premium during the 1980s came from a shortage of college grads, and a third of the increase was due to declining real minimum wages. Vogel also analyzes state-level data from the last 40 years, finding that the skill premium rose fastest in states where the minimum wage was low and slowest in states with high minimum wages. These findings suggest that policymakers looking to reduce income inequality will need a two-pronged solution that increases both the number of college grads and the minimum wage.